financial services

News Update Financial Regulatory

Recent developments in integrity, prudential and conduct-of-business supervision
2 juni 2020
2 June 2020

The Houthoff Financial Regulatory team closely monitors the developments on the financial markets and within financial supervision. In this News Update, we have rounded up a few important recent developments.

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Since we published our last News Update, legislatures and the regulators for the financial markets and financial supervision have issued a number of measures, reports and news alerts. We have selected a few topics concerning integrity, prudential and conduct-of-business supervision and take a closer look at these below.

Climate change regulatory push in financial sector

On 27 May 2020, the Network for Greening the Financial System ("NGFS"), a group of Central Banks and supervisors who share best practices and contribute to developing environmental and climate risk management in the financial sector and mobilising mainstream finance to support the transition toward a sustainable economy, released two publications:
  • A guide for supervisors that gathers leading practices of the supervisory community and recommends five courses of action for banking and insurance supervisors to integrate climate-related and environmental risks into their work. The guide is based on input received from NGFS members. Supervisors worldwide are building their expertise, allocating resources, analysing the climate-related and environmental risks of their financial institutions and publishing documents to clarify expectations for financial institutions regarding climate-related and environmental risks.
  • A status report on best practices on quantification and mitigation. The report highlights the findings of a survey of 49 banks and 5 insurance companies, on tracking the specific risk profiles of green, non-green and brown financial assets, and developing analytical tools.

In the Netherlands, the Dutch Central Bank (De Nederlandsche Bank, "DNB") is devoting substantial resources and PR attention to climate change research and developing best practices. This indicates that practical application will be a high priority in the near future.

You can find Houthoff's work on climate change here.

New Anti-Money Laundering regime (AMLD5) implemented on 21 May 2020

The Implementation Act amending the Fourth Anti-Money Laundering Directive entered into force on 21 May 2020. The key changes are:
  • Firms providing services for exchanging virtual money (cryptos) and regular (fiduciary) money, and custodian wallet providers are now subject to integrity supervision by DNB, on the basis of the Anti-Money Laundering and Anti-Terrorist Financing Act (Wet ter voorkoming van witwassen en financiering van terrorisme, "WWFT"). This means that these firms must register with DNB, and their board members and shareholders who own qualifying holdings must be assessed for fitness and propriety. It also means that DNB will monitor these firms' compliance with the rules on money laundering, terrorist financing and sanctions regulations, and enforce the prohibition on offering these services without registration and monitoring. Anti-money laundering ("AML") compliance is a high-profile priority in the Netherlands.
  • The measures concerning high-risk third countries have been tightened. Enhanced customer due diligence measures now apply.
  • The opportunities to exchange information between competent authorities have been extended.
  • Further restrictions have been placed on using anonymous prepaid cards.

Additional scrutiny of dividend arbitrage

On 12 May 2020, the European Banking Authority ("EBA") published a report with the results of its inquiry into dividend arbitrage trading schemes. The report covers the response of prudential and AML supervisors and countering the financing of terrorism ("CTF") supervisors in dealing with these schemes. The report sets out the EBA’s expectations under the current regulatory framework. The key issues include requiring credit institutions and national authorities to take a comprehensive view of the risks highlighted by dividend arbitrage trading cases. The expectations also cover the exchange of information and cooperation between prudential, tax and AML authorities. Consistency in reporting to all authorities will be even more important.
To enhance the future regulatory framework, the EBA also published a 10-point action plan, following recent legislative changes in the EU Capital Requirements Directive ("CRDV") and the EBA’s AML/CFT mandate in the EBA Regulation. These will be implemented in 2020 and 2021. The EBA will strengthen all related prudential and integrity guidelines. Financial undertakings and supervisors must fully comply with these.

AFM - Recommendations for MiFID II review

On 19 May 2020, the Dutch Authority for the Financial Markets ("AFM") issued a report in the context of the current review of the Markets in Financial Instruments Directive ("MiFID II") by the European Commission and the European Securities and Markets Authority ("ESMA"). The AFM has carried out a study and made policy recommendations for the areas of equity, commodities and investor protection. The recommendations concern changes to the regulatory framework of MiFID II, suggestions for further ESMA guidance and increased European convergence in supervision:
  • The central underlying themes for equity are whether transparency has sufficiently increased, what the impact is on liquidity and how the market structure has changed because of MiFID II.
  • For commodities, the AFM investigated the impact of the introduction of position limits, position management controls and pre-trade transparency requirements for trading venues that trade in commodity derivatives in the Netherlands.

The Dutch Ministry of Finance has also provided – generally supportive – input.
Written by:
Berry van Wijk

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